Strategic Management: Formulation and Implementation

Product/market/industry Life Cycles

The product life cycle is basic to understanding the
significance the portfolio approaches. The concept has
been around for so long and is so widely used that it is
difficult to trace its originator.

The product life cycle holds that products and markets
and entire industries develop, grow rapidly, mature,
saturate, and decline in a somewhat predictable
fashion. If sales are plotted as a function of time,
this predictable pattern is a lazy-S curve. The
traditional stages in an industry's life cycle are shown
in Figure 4-1.

In the introduction phase, the output industry
(products or services) is initially offered to the
customers, and sales are slowly built up as more
customers become aware of product. At this stage in the
industry's development, choice of technology is often not
yet settled.

After a certain critical mass of demand has
been established, sales take off in an exponential growth
rate as increasingly large numbers of new customers
demand the product for the first time, the industry
enters the growth stage.

At this stage, most buyers are
still first-time purchasers of the industry's outputs.
Over time, growth of the industry begins to slow as
marked demand approaches saturation. Fewer first-time
buyers remain; most purchase are now for replacement
purposes. When the market demand for the industry/s
outputs is completely saturated, the maturity stage has
been reached.

As technology makes the product obsolete, or as
substitute products arrive, sales decline. This decline
stage is often ushered in when consumers begin to turn
to the products or services of substitute industries.

There are problems with using the Life Cycle Concept
as a precise strategic decision making tool. It is almost
impossible to predict how long a certain phase of the
life cycle will last or know the height of the curve
(unit sold). Thus, the concept's use as a forecasting
tool is very limited.

However, the product life cycle captures the dynamics
of product of production and market evolution and can be
used for generating strategic alternatives, specifically
in the following ways:

-to suggest appropriate areas of functional area
emphasis by stages of the cycle;

-to suggest appropriate strategy alternative;

-to time strategy changes;

-to asses the corporate business units to ensure that
developing products are introduced as others pass
through growth to maturity.

Figure 4-2 depicts four general stages of
product/market evolution and the typical changes in
functional capabilities often associated with business
success at each stage.

The important observation of the life cycle is that
one of the critical success factors in this in the extent
to which the product can gain and maintain a large market
share. This later became of central importance to
portfolio analysis.